Town of Groton v. Comm'r of Revenue Servs.

• Decision Date: 30 June 2015
• Docket Number: No. 19397.,19397.
• Citation: 118 A.3d 37,317 Conn. 319
• Court: Connecticut Supreme Court
• Parties: TOWN OF GROTON v. COMMISSIONER OF REVENUE SERVICES et al.

317 Conn. 319

118 A.3d 37

TOWN OF GROTON

v.COMMISSIONER OF REVENUE SERVICES et al.

No. 19397.

Supreme Court of Connecticut.

Argued Jan. 5, 2015.

Decided June 30, 2015.

Bryan P. Fiengo, with whom, on the brief, was Eric W. Callahan, New London, for the appellant (plaintiff).

Dinah J. Bee, assistant attorney general, with whom, on the brief, was George Jepsen, attorney general, for the appellees (defendants).

ROGERS, C.J., and PALMER, ZARELLA, EVELEIGH, ESPINOSA and ROBINSON, Js.

Opinion

ROBINSON, J.

The sole issue in this appeal is whether the fees that a municipality charges for refuse removal services provided to industrial, commercial, or income producing real properties are subject to the sales tax under General Statutes § 12–408(1)(A)¹ when that municipality does not make a profit on those fees because they are either used to defray the municipality's overhead expenses in administering the refuse removal program, or to pay the service charges of other participants in the refuse disposal process. The plaintiff, the town of Groton, appeals² from the judgment of the trial court dismissing its tax appeal from the decision of the named defendant, the Commissioner of Revenue Services,³ to render a sales and use tax assessment against it in the amount of $240,653.89. On appeal, the plaintiff claims, inter alia, that the trial court improperly applied numerous cases from this court, in particular AirKaman, Inc. v. Groppo, 221 Conn. 751, 607 A.2d 410 (1992), in concluding that its arrangement of refuse collection services for industrial, commercial, or income producing real properties, on a revenue neutral basis, constituted a sale for “consideration” subject to the sales tax under § 12–408(1)(A). We agree with the plaintiff and, accordingly, reverse the judgment of the trial court.

The record reveals the following relevant undisputed facts, as found by the trial court, and procedural history. The plaintiff is a municipal corporation organized under the laws of the state of Connecticut. On or about November 13, 1985, the plaintiff became a member of the Southeastern Connecticut Regional Resources Recovery Authority (regional authority), which was formed pursuant to General Statutes § 7–273aa et seq. The regional authority operates a waste-to-energy facility (waste facility) in Preston. The plaintiff entered into a “municipal service agreement” with the regional authority, which provided the plaintiff with access to the waste facility for its disposal needs in exchange for a per ton fee. That agreement imposes a minimum delivery requirement on the plaintiff.

In August, 1998, the plaintiff adopted an ordinance that created a municipal resource recovery authority, known as the Town of Groton Resource Recovery Authority (town authority), with offices located at the plaintiff's town hall. In January, 1999, the plaintiff adopted an ordinance putting the removal, transport, and disposal of solid waste from commercial, industrial, and income producing businesses within the plaintiff's geographical area, known as “end users,” under the management of the town authority. During the time period at issue in the present appeal, the plaintiff contracted with a private trash hauler to take refuse from the end users' properties to the waste facility. The end users would apply to the town authority for service from the trash hauler, and would select the size of the necessary trash receptacles and the frequency of trash pickups from their properties; these elections would determine the fee charged by the trash hauler. The trash hauler would then transport the refuse to the regional authority's waste facility for disposal at the charge of $60 per ton.

The hauler and the regional authority bill the plaintiff for their fees on a monthly basis. The plaintiff pays the invoices of the hauler and the regional authority in full each month. After making those payments to the hauler and the regional authority, the plaintiff then bills each end user on a monthly basis for its share of the hauler's fee, the regional authority's fee, and the plaintiff's overhead expenses of $3.58 per ton of waste to administer the program.⁴ The end users' monthly payments cover the payments that the plaintiff advances to the trash hauler and the regional authority; the total outlays and receipts from the end users create a “ ‘break even’ ” situation for the plaintiff, which does not profit from providing this service. The plaintiff did not apply state sales tax to the invoices that it issued to the end users, and did not remit sales tax to the defendant for these services.

Following a sales and use tax audit relating to its billings to industrial, commercial, or income producing real property for refuse and sanitary waste removal, the defendant issued a notice of assessment in the amount of $240,866.06, for sales taxes and interest due for the period from May 1, 2007, through September 30, 2010. The plaintiff subsequently filed a protest contesting the validity of that assessment with the defendant. By a letter dated September 14, 2011, the defendant denied the plaintiff's protest, and issued a revised assessment in the amount of $240,653.89.⁵

The plaintiff appealed from the decision of the defendant to the trial court in accordance with General Statutes § 12–422. The trial court concluded that the plaintiff had failed to establish that the tax assessment was incorrect, observing that refuse removal is a type of service under General Statutes § 12–407(a)(2)(I) and (37)(I),⁶ as explicated by the defendant's regulations; see Regs., Conn. State Agencies § 12–407(2)(i)(I)–1(g)(1) ;⁷ and, therefore, is subject to sales tax under § 12–408(1)(A), given that the plaintiff did “not dispute that the [defendant] met the requirement of consideration with regard to the exchange of cash by the ‘end users' to the [plaintiff].” The trial court disagreed with the plaintiff's argument that, under AirKaman, Inc. v. Groppo, supra, 221 Conn. 751, 607 A.2d 410, “there is no sale of services where the [plaintiff] provides services and receives by way of consideration a reimbursement of its own expenses in providing such services,” concluding instead that AirKaman, Inc., “does not stand for a general rule that all ‘conduit’ situations are not subject to sales tax,” given the agency relationships established in that case, which were not present in this case. The court further concluded that, “while the [plaintiff] sends an invoice for its costs to the end users, and the end users comply by paying this invoice, there is still justification to find that there was a sale of services by” the plaintiff, which was “for a consideration.” Finally, the trial court rejected the plaintiff's claim that it “is exempt from the sales tax because the function of trash removal is a traditional governmental function,” observing that the plaintiff “has not demonstrated that Connecticut has a constitutional or statutory provision exempting municipalities that sell services, even if related to government functions, from the imposition of state sales tax.”⁸ Accordingly, the trial court rendered judgment dismissing the plaintiff's tax appeal. This appeal followed.

On appeal, the plaintiff claims, inter alia, that the trial court improperly concluded that the fees that it collected for refuse removal were subject to the sales tax. Specifically, the plaintiff contends that the trial court improperly failed to consider the “ ‘true object’ ” of the transaction in accordance with AirKaman, Inc. v. Groppo, supra, 221 Conn. 751, 607 A.2d 410, namely, that its fees were a mere pass-through arrangement on which it did not turn a profit in carrying out the statutorily authorized, governmental function of garbage collection via a municipal or regional authority, as distinguished from acting in a proprietary capacity for purposes of corporate benefit or profit for the municipality. Citing Sal Tinnerello & Sons, Inc. v. Stonington, 141 F.3d 46 (2d Cir.), cert. denied, 525 U.S. 923, 119 S.Ct. 278, 142 L.Ed.2d 230 (1998), the plaintiff emphasizes that its fees were not sales or part of a commercial enterprise, but rather, were “ ‘benefit assessments' ” to pay for the governmental function of solid waste collection. To this end, the plaintiff argues that, under the “true object” inquiry required by AirKaman, Inc., unlike in the commercial profit seeking context, it was a “mere conduit” between the end users and the hauler and regional authority and, therefore, the fees that it charged were a dollar for dollar reimbursement that did not constitute the “consideration” required by § 12–407(a)(2)(I) to render services taxable, further relying on the principle that ambiguities in taxing statutes are construed in favor of the taxpayer.

In response, the defendant contends that the trial court properly determined that refuse removal services are subject to the sales tax under the plain language of the applicable statutes and implementing regulation, namely, § 12–407(a)(2)(I) and (37)(I), and § 12–407(2)(i)(I)–1(g)(1) of the Regulations of Connecticut State Agencies. Relying on Andersen Consulting, LLP v. Gavin, 255 Conn. 498, 767 A.2d 692 (2001), the defendant contends that the “true object” test of AirKaman, Inc. v. Groppo, supra, 221 Conn. at 763–64, 607 A.2d 410, does not apply when the service at issue “clearly falls under a relevant statute or regulation.” The defendant further argues that the plaintiff's power to provide for or regulate the provision of trash removal services under General Statutes § 7–148(c)(4)(H)⁹ does not render it exempt from the sales tax, because “there is no public mandate that the refuse removal services be provided by a municipality at cost,” nor any legislative intention to “exempt from sales tax the provision of those services simply because the [plaintiff]—for salutary purposes—decided to arrange and bill for the services itself,” noting that General Statutes § 7–273bb (a)(9)¹⁰ specifically authorizes municipal...